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Tuesday, April 15, 2014

Applying the Alternative Response Hierarchy Models to Predict E-Commerce Success in Southeast Asia

The strong economic growth in Southeast Asia has led to a continuous improvement in Internet infrastructure making it the next hotspot for e-commerce ventures. The abundance of young, tech-savvy consumers is an appealing aspect of the Southeast Asian market. Roughly half of the region’s 600 million people are under 30 and increasingly moving to cities, which helps explain why the region has some of the highest levels of digital engagement in the world. And high Facebook and Twitter usage provides e-commerce companies with a fertile channel for connecting with potential customers.

However, the rapid increase in digital engagement did not produce a relative growth in Internet shopping. The total e-commerce transactions the past decade is still relatively small compared to more advanced economies. The level of trust in using the Internet for shopping is still weak because Southeast Asian consumers have yet to develop the maturity in buying products or services online. Comparing advanced economies to Southeast Asia, trust in Internet shopping is high. The high trust index is driven by four antecedents of which can be used to predict future buying behavior in Southeast Asian markets.

Lee and Turban (2001) proposed a theoretical model for investigating the four main antecedent influences on consumer trust in Internet shopping, a major form of business-to-consumer e-commerce: trustworthiness of the Internet merchant, trustworthiness of the Internet as a shopping medium, infrastructural (contextual) factors (e.g. security, third-party certification), and other factors (e.g. company size, demographic variables).

They suggested that the antecedent variables are moderated by the individual consumer’s degree of trust propensity, which reflects personality traits, culture, and experience. Based on the research model, a comprehensive set of hypotheses is formulated and a methodology for testing them is outlined.

Some of the hypotheses are tested empirically to demonstrate the applicability of the theoretical model. The findings indicate that merchant integrity is a major positive determinant of consumer trust in Internet shopping, and that its effect is moderated by the individual consumer’s trust propensity.

As seen in recent studies, Southeast Asia is the next big market for Internet shopping platforms. The slow but increasing growth of e-commerce transactions in the past is an indicator of adoption and increasing consumer trust. However, as more online stores opens, consumers are presented with several websites that are similar in nature but provides different experiences from discovery to purchasing an offer. This experience is a predictor for future online transactions – whether to continue buying online or abandon Internet shopping and revert to the physical retail stores.
In most studies, experience in the online context is synonymous to the entire digital sales funnel. It is the entire user experience from discovering the offer through online ads, increasing their knowledge by familiarizing themselves with the website, until the consumer reaches the end of the sales cycle and decides to buy the offer. Most marketers also use this linear formula to improve their digital marketing campaigns and expect incremental sales growth by replicating the offline retail experience in an online setting. What most marketers forget is that online buying behavior does not follow the traditional consumer response processes.

Product tangibility is what’s lacking in the Internet shopping process hence forces the consumer to respond to the experience differently compared to the traditional retail experience. And if the consumer behaves differently, a different approach is needed to further investigate what are the key drivers for buying online.

Michael Ray (1974) has developed a model of information processing that identifies three alternative orderings of the three stages on perceived product differentiation and product involvement. These alternative response hierarchies are the standard learning, low-involvement, and dissonance/attribution models (Figure 1)

Figure 1

Ray’s study show that not all consumers follow the same purchase patterns and their response process varies based on their level of involvement. A change in consumer attitude, in this case the act of purchasing an item, changes depending on what type of product or services is being bought and under what circumstances. Adding the Internet as a medium complicates this process and highly influences the consumer attitude. Ergo, applying the alternative response process in understanding Internet shopping can easily predict e-commerce success. E-commerce succes is defined as total sales revenue and repeat spending on the online store.

The DeLone and McLean IS (Information System) Success Model is an existing success-measurement framework that has found wide application since its publication in 1992. It is a comprehensive framework for measuring the performance of information systems. With the emergence of new business models and e-commerce platforms, an updated version of the model can be applied to e-commerce success measurement (Figure 2).

Figure 2

The new and updated model is based on the empirical and theoretical contributions of researchers who have tested and discussed the original model. They suggested that the updated model is composed of six dimensions - System Quality, Information Quality, Service Quality, Use, User Satisfaction, and Net Benefits. Based on these independent researchers, they stressed the importance of measuring the possible interactions among the success dimensions in order to isolate the effects of independent variables on one or more of them.

Viewing the DeLone & McLean IS Success Model from both a process perspective and a variance perspective can be useful in identifying and understanding these interactions. Drawing from the information system and marketing literature over recent years, the six dimensions of the updated DeLone and McLean model comprise a parsimonious framework for organizing the various e-commerce success metrics identified in the literature.

Applying the alternative response hierarchies to predict e-commerce success will give insights to the key drivers for a successful online business. Understanding how a consumer develop their attitude towards Internet shopping in Southeast Asia will provide future researchers insights into how to tap this growing economy.